In a 15 June Subcommittee on Terrorism and Illicit Finance (Committee on Financial Services) Hearing, titled Illicit Use of Virtual Currency and the Law Enforcement Response, Robert Novy of the secret service Office of Investigations said "one of the greatest emerging threats to U.S. national security is illicit use of virtual or cryptocurrencies".

He specifically mentioned Monero and Zcash by name, prompting the latter to say:

"We believe it is in the best interest of the citizens of the United States, the US Secret Service, and other governmental organizations to advocate for privacy rights and protect its citizens and businesses from harm."

This national security vs privacy rights argument is the state of the debate in a nutshell.

"While some digital currencies have operated lawfully, others have been used extensively for illicit activity… The growing illicit use of digital currencies risks undermining the effectiveness of existing U.S. laws and regulations, especially those intended to limit the ability of criminals to profit from their illicit activities … One of the greatest emerging threats to U.S. national security is illicit use of virtual or cryptocurrencies," Novy said.

Whether individuals should necessarily have any stake in this kind of international flexing and whether it's fair for the occupants of a weaker country to pay the price of loss, such as Venezuela's residents are, is a purely philosophical question.

Either way, the USA has officially remained unconcerned about the potential risks of loss of economic dominance while instead speaking out on money laundering.

When cryptocurrency entered the money laundering world, it entered as just one product among many in a highly competitive industry. It's extremely difficult to get worked up about just one more entrant in the market, especially to the extent that words like "terrorism" and "national security" would suggest.

And unlike other currently-available ways of cracking down on money laundering, reflexive opposition to private transactions could cause real long term damage, and might mean missing out on the potential benefits of a more privacy-centric society.

The cost

Even if anonymous cryptocurrencies could be eliminated at the push of a button, it wouldn't necessarily be in anyone's best interests to push it.

Cryptocurrency makes up a negligible part of the money laundering pie and alternatives will keep profitably ticking along even if crypto disappears. Even if killing privacy coins was easy, the benefits are hard to see while the downsides are fairly apparent.

Firstly there's the difficulty and cost of actually enforcing the "no privacy coins" laws. The nature of the technology means it will be inherently difficult to catch perpetrators, while the "if privacy is illegal, only criminals will be private" effect means you might not want to. It stands to accentuate the current situation where the most experienced and dangerous criminals avoid getting arrested, and the least dangerous one-off criminals (and innocents) are arrested in larger numbers simply because they are easier to catch, before emerging with a lot more experience and no opportunities except a return to crime.

By some measures, it's irresponsible and counter-productive to criminalise any new non-dangerous activities as long as the underlying system is so ineffective, and it will only cause more problems than it solves. In a similar but more controversial vein, it might be a good thing for society as a whole if transactional privacy made it more difficult to catch and prosecute non-violent drug offenders. It would save people from that self-sustaining prison cycle while presenting a guilt-free (so to speak) way to divert resources away from non-violent crimes and into more useful activities.

But even without criminalisation, everyday privacy in transactions can still deliver a lot of benefits for the everyday person. For example, by reducing identity theft and preventing credit card numbers from being such easy pickings, or simply being an ethical step in the right direction.

Watch the hearing

Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, XRB

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